We’ll open this letter to our friend “Mr. Market” by stating one thing that will be very obvious in six to 12 months. 90% of people reading this article will have gotten it wrong. It’s not your fault though…it’s the way our minds are wired and the content we’re constantly being fed.
Regardless of your current market strategy it’s times like this that will test the most patient of long-term investors. We’ve written about this countless times but no matter what the sage counsel or stock market adage is, you should be rattled right now. We could be like most “perma-bull” financial advisors and try to data mine for all the reasons to stay calm or share positive anecdotes to convince you that now is the time to invest; it won’t matter though. Putting “lipstick on a pig” won’t help you nor the current market environment. Bad news and reasons to panic will be the headline for the weeks to come and there will seemingly be no safe place to hide.
Does the old stock market adage of “sell in May and go away” make sense? We’ve actually written about this one spring about nine years ago where we actually advocated taking some chips off the table, however it had less to do with a cute stock market rhyme and more due to profit taking. Where are we at now going into May and is this allegedly poor seasonal time of year appropriate to sell or perhaps not?
Have we started off the year with enough things to worry about? The 2020s have seen more than any horror script one would ever want to draw up. We’ve had an unprecedented global pandemic, a massive stock market crash, and now a war….and we’re just two years in! We’ve constantly reminded people that the stock market always has a boogey man hiding in the darkness. Even in the proverbial “good times” people have a natural tendency to feel as though the party will end at some point. To that point…they’re partly right; the party doesn’t necessarily end but it certainly takes a break before resuming.
Today’s article will be rather short, even though there is much behind it (and of course more to come as this story develops). We often talk about people having short memories but don’t think that the Ukraine and Russia conflict just started last week. Click here if you need to catch up on a conflict that’s been in flux since February of 2014. The point of our “letter to Mr. Market” today, however, is on what to do with your investments.
Much like Baskin-Robbins ice cream and their 31 flavors, we found a chart that you need to take a look at; it may not be as soothing as an ice cream cone but it can do wonders for how to put things into context. Below we’re sharing a chart that really want you to take some time to zoom in and reflect on each incident. How did you feel during each one? Were there any that you completely blew off or thought they were overhyped? Conversely, which one scared you the most into actually selling?
Finally. It’s here….a bonafide stock market correction. What’s also almost here is Groundhog Day…but more on that in a minute. For those of us with short memories we’ll have to do the necessary preamble and small talk refresher on what this is. For those of you who remember what you did (or were supposed to do/not do) during the last correction, here we go again. Do you remember the fantastic Bill Murray movie “Ground Hog Day”? Click here for the last time we wrote about it but again….people seem to forget what they ate for breakfast so you may not remember what happened in 2018.
Oh… but “it’s different this time“, right? Those are indeed the four most dangerous words in investing. Are there problems to worry about? YES!!!! (but there always has been and always will be)
Yesterday seemed like the start of the Great Depression for some pundits and nervous nellies. Fear sells, and negative prognosis appears smarter than positive outlooks for whatever reason. The reality, and key reminder we wish to bring up again, is that the long awaited correction has yet to come. As of this writing, we are literally only -3.91% off of all-time S&P 500 highs in the market.
It should be noted that AAII Bearish Sentiment reading is as high as its been since the last most major S&P 500 sell-off.
What’s the first term you think of when discussing the economy? Stocks, bonds, gold? How about Supply & Demand?
On a recent flight to Salt Lake City, Utah, we saw a “picture worth a thousand words”. Matt Pixa, founder of My Portfolio Guide, LLC, took this picture from the air and also went out to pick the brains of some contacts he has in the import/export business to help put more color to the canvas.
If you zoom in on the picture it almost doesn’t do it justice. There are almost 50 cargo ships waiting to unload but basically stuck out there for weeks. Why are all these cargo ships lined up and floating outside the Long Beach and Los Angeles ports?
Last week was a microcosm of how stock market headlines can really lead you to hear one thing yet see another. For a while now we’ve been barking about how the FAANG stocks have artificially propped the market as there are some serious underlying health concerns. As a reminder for our newer readers, FAANG refers to the five major U.S. technology companies – Facebook (FB), Amazon (AMZN), Apple (AAPL), Netflix (NFLX), and Google (GOOGL). These household names have driven the markets and camouflaged some warning signs of risk on the horizon for quite some time. If you want a peek under the hood or a refresher on just what their impact, valuation, and market caps are relative to the broad market, please click here. (pay close attention to figure 18 which shows market cap with and without FAANG as well as Figures 13 & 14 for some relative earnings/revenue performance)
So…what happened last week? Why did the markets get hit so hard? It was indeed a rough week but then again not too many weeks feel all that bad when we take a quick look in the rear view mirror. (last year there were some mornings when the stock market was down literally -9% before you had your first sip of coffee) Albeit not a pleasant memory, don’t ever forget that (we’ll touch on why later in this article).
You’ve heard us barking about this before but as the world navigates its way out of the Covid-19 pandemic, it won’t be just the stock market that recovers. In many respects the market has mainly bounced back due to a lot of “sugar in the blood” from massive fiscal stimulus and has still primarily been led by some mega cap names. What’s brewing below the surface and actually could turn into something far more sustainable, is a boom in commodities.
Have you ever heard the expression “Even a blind squirrel find a nut once in a while?”
We’ve written you hundreds of letters over the past decade and on occasion it’s nice to put a face with the name! Last week, Matt Pixa of My Portfolio Guide, LLC, was given the honor and opportunity to present an Economic Outlook to the Seal Beach Chamber of Commerce.
We share it with you here and look forward to your feedback and questions!
We have commented many times on how people have short memories. In the case of recent stock market behavior, however, there is no way one could forget what a ride we’ve all been on. Our job today is not to draw attention to the very obvious past but to one area of the market that is not always directly connected to stocks or bonds.
Do you have gold in your portfolio and if so, should you buy more, hold on to what you have, or dump it? Continue reading →